Question

You are given the following information for Smashville, Inc.

Cost of goods sold:	$	184,000
Investment income:	$	1,600
Net sales:	$	387,000
Operating expense:	$	88,000
Interest expense:	$	7,400
Dividends:	$	6,000
Tax rate:		30	%

Current liabilities:	$	12,000
Cash:	$	21,000
Long-term debt:	$	32,000
Other assets:	$	40,000
Fixed assets:	$	125,000
Other liabilities:	$	5,000
Investments:	$	36,000
Operating assets:	$	64,000

  

Calculate the gross margin, the operating margin, return on assets, and return on equity.

Answer 1

Net sales	387000
(-) Cost of goods sold	184000
Gross profit	203000
(-) Operating expense	88000
Operating income	115000
(+) Investment income	1600
(-) Interest expense	7400
Earnings before tax	109200
(-) Tax @ 30%	32760
Net income	76440

Fixed assets	125000
Other assets	40000
Investment	36000
Operating assets	64000
Total assets	265000

Total assets	265000
(-) Current liabilities	12000
(-) Long term debt	32000
(-) Other liabilities	5000
Total equity	216000

Gross margin = Gross profit / Net sales = 203000 / 387000	52.45%
Operating margin = Operating income / Net sales = 115000 / 387000	29.72%
Return on assets = Net income / Total assets = 76440 / 265000	28.85%
Return on equity = Net income / Total equity = 76440 / 173000	44.18%